(re)Mortgage Question, need some advice!

gradyhawks

gradyhawks

gradyhawks

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Need some advice from you sages of old about mortgages and such.

We're looking to remortgage to get a better rate as our 2 year fixed is almost over and I think we're after a 5 year one since rates are nice and low, it seems, and a bit of security in the payments staying put. So we've got a couple of decent offers to go for with Nationwide but can't decide between these two.

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Looking at the total paid over 5 years, they're essentially the same after you take into account the £999 "product fee" the better rated one has. Is that the case? Or am I missing something blindingly obvious?

(also if anyone has a good reason not to just go 5 year fixed, I'm all ears!).

Thanks,
Grady
 
You're spot on in regards to them being pretty similar overall.

The £999 has to be accounted for somewhere so either you pay it upfront and add that to the £28651.80, or the product fee gets added to the mortgage balance and you'll end up paying interest on that alongside the rest of the remaining mortgage.

Personally, I always tend to avoid product fees as our mortgage isn't big enough that the interest rate saving outweighs the cost of the product fee.

In terms of whether or not to go for a 5 year fix... It depends on the difference in interest rate / monthly repayments between that and a 2/3 year fix and also your appetite for risk.

Interest rates are at a historic low so the only way is up. However, I can't see them rising by much in the next few years unless there's some major economic boom once covid eases.
 
The none product fee one looks very slightly better. Costing you £956.40 more before taking the fee of the first one into account. So £42.60 saving.
Plus any interest you'd get from the £999 you didn't spend at the start, not that that will be much.

If you make overpayments then you'd be save even more, because of the higher interest rate being charged.
 
What’s the balance after the fixed period? Don’t forget the fee is spread over the life of the mortgage not the fixed period.

So for example if you remortgage five times over the whole term you’re adding five fees and paying the interest on the fees. It adds up and keeps you in debt. Pay the fee now.

Also tweak your mortgage period you’ll be astounded by the amount you save in the total amount repayable over the whole term if you say knock 3, 4 or 5 years off with a small amount of additional monthly payment.

Just consider that the bank, the lender, the mortgage broker and the estate agent all benefit from keeping you in debt for the longest period possible.

Numero uno do what’s best for you.
 
DanTheMan said:
Interest rates are at a historic low so the only way is up. However, I can't see them rising by much in the next few years unless there's some major economic boom once covid eases.
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That's what I figured. Sure they might go down a little more, but the bank ain't ever going to pay you money to borrow it! 5 year fixed would mean we can plan finances for those 5 years and make money off that as well.

Sasahara said:
The none product fee one looks very slightly better. Costing you £956.40 more before taking the fee of the first one into account. So £42.60 saving.
Plus any interest you'd get from the £999 you didn't spend at the start, not that that will be much.

If you make overpayments then you'd be save even more, because of the higher interest rate being charged.
Click to expand...

So why would the bank offer both if one is just flat out a better deal? It's not like the values are hidden and Nationwide are trying to trick people into getting whats best for them, you just need to look at the total paid. Not sure if I am missing something! Or is it because the value we're taking out as a re-mortgage just so happens to be close to the mark where both deals give the same outcome £££ wise.

Maccapacca said:
What’s the balance after the fixed period? Don’t forget the fee is spread over the life of the mortgage not the fixed period.

So for example if you remortgage five times over the whole term you’re adding five fees and paying the interest on the fees. It adds up and keeps you in debt. Pay the fee now.

Also tweak your mortgage period you’ll be astounded by the amount you save in the total amount repayable over the whole term if you say knock 3, 4 or 5 years off with a small amount of additional monthly payment.

Just consider that the bank, the lender, the mortgage broker and the estate agent all benefit from keeping you in debt for the longest period possible.

Numero uno do what’s best for you.
Click to expand...

The balance after the fixed period is going to be the same (well, £42.60 difference) going with either product, or is that not the case? As for the mortgage period, is it not best to just overpay instead? Assuming that you get a mortgage that lets you, that way you're not tied into having to pay the higher monthly repayments if the worst should happen.

---

Thanks chaps!
 
gradyhawks said:
So why would the bank offer both if one is just flat out a better deal? It's not like the values are hidden and Nationwide are trying to trick people into getting whats best for them, you just need to look at the total paid. Not sure if I am missing something! Or is it because the value we're taking out as a re-mortgage just so happens to be close to the mark where both deals give the same outcome £££ wise.
Click to expand...

They are too lazy to work it out, and/or they probably don't mind making more money if you pick the worse one? :D
They are just showing the 2 best options for you, one with fee, one without.

The more you borrow the more likely the with fee one would start to become the better option.

Maccapacca said:
What’s the balance after the fixed period? Don’t forget the fee is spread over the life of the mortgage not the fixed period.
Click to expand...
You should only work out how fee impact costs based on the Fixed time period when comparing fixed period products.
You'd be mad to go into the variable rate after the fixed period ends, always remortgage or pay off. (And you don't even know what the rate will be, so can't do any accurate workings out)
 
gradyhawks said:
So why would the bank offer both if one is just flat out a better deal? !
Click to expand...
Your mortgage must be quite small. For a lot of people paying the fees worth it, that's why it's offered. E. G I intend to get circa 400k mortgage

Only thing to consider is early repayment charges if you want to sell/move within 5 years
 
Mortgages with product fees tend to be beneficial if the mortgage remaining is bigger as the interest saved tends to outweigh the product fee. It's been a while since I dealt with mortgages in any great details but as a rough rule, a mortgage of £250k or more is where the balance tends to tip in favour of paying a product fee for a lower rate.

As macca says, the product fees tend to get spread over the life of the mortgage, not just the fixed terms. You then end up paying interest on that £999 for however long you have a mortgage so potentially decades. The other option is paying it upfront but you'd be better taking the mortgage with no product fees either way.

Overpaying can work out well if you are strict with overpayments but it's easy to decide not to overpay for a month and then before you know it, you've not overpaid for a year.
 
gradyhawks said:
The balance after the fixed period is going to be the same (well, £42.60 difference) going with either product, or is that not the case? As for the mortgage period, is it not best to just overpay instead? Assuming that you get a mortgage that lets you, that way you're not tied into having to pay the higher monthly repayments if the worst should happen.

---

Thanks chaps!
Click to expand...

The £42.60 is the difference in cost, it probably means your fee less the 42.60 less interest is what’s your balance would be left after the fixed rate. The difference carried forward to the next mortgage.

What’s the total amount repayable for both after the whole term not just the fixed rate.

And you’re very rarely tied if you get into financial trouble. The last thing they want is you to default.
 
What’s your LTV?

DanTheMan said:
In terms of whether or not to go for a 5 year fix... It depends on the difference in interest rate / monthly repayments between that and a 2/3 year fix and also your appetite for risk.
Click to expand...

Don’t forget to factor in potential product fees every 2 years on that term plus credit searches and the whole remortgaging process, solicitors etc.
 
ChrisD. said:
What’s your LTV?

Don’t forget to factor in potential product fees every 2 years on that term plus credit searches and the whole remortgaging process, solicitors etc.
Click to expand...

We're on an LTV of 60%, just about, thanks to Nationwide saying our house is worth 8.8% more than when we bought it two years ago. Got cash to overpay though incase that isn't the case for whatever reason.

Buffman said:
Your mortgage must be quite small. For a lot of people paying the fees worth it, that's why it's offered. E. G I intend to get circa 400k mortgage

Only thing to consider is early repayment charges if you want to sell/move within 5 years
Click to expand...

Yeah, I think because it's only £136k, the number's look the same. So your second point, about moving or selling within 5 years needs a bit of thought from us both here, but that's big picture things we need to decide on. I know you can port mortgages over, but what if we wanted to leave the country? Don't want to get stung with a heavy early repayment charge.
 
ChrisD. said:
I was wondering how you had such a decent rate. I'm currently on 54% but we're buying a bigger house and the LTV is going to be 75% (giving us some savings left over). Looking at 5 years at 1.64% which I think is very reasonable still.
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1.64% Sounds alright at 75% ltv.

Im getting 1.69% 5 years fixed at 75%, £999 fee
 
Buffman said:
1.64% Sounds alright at 75% ltv.

Im getting 1.69% 5 years fixed at 75%, £999 fee
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Yeah, it's what I'm paying now but for a 2 year fixed, I had issues with some of the high street banks due to being self employed at the time. HSBC is looking to be the best option at the moment for us.
 
Interesting reading, I am a ftb and just about to apply for my first mortgage. I am being offered on a 85% LTV, 2.64% for 2yr fixed or 5 year fix – 2.87%. My thinking was to do the two years and then reevaluate but now I am unsure.
 
Biz.Kid09 said:
Interesting reading, I am a ftb and just about to apply for my first mortgage. I am being offered on a 85% LTV, 2.64% for 2yr fixed or 5 year fix – 2.87%. My thinking was to do the two years and then reevaluate but now I am unsure.
Click to expand...

I'd do some costing using an amortisation calculator to see what you'll owe at the end of the 2 years. If you can get into a lower LTV bracket with a significant interest savings then it might be worth doing.

If you're situation is relatively typical (salaried wages, no help to buy scheme, decent credit, standard house) then there shouldn't be any cost to remortgage in a few years and I can't see interest rates jumping up too much.
 
DanTheMan said:
I'd do some costing using an amortisation calculator to see what you'll owe at the end of the 2 years. If you can get into a lower LTV bracket with a significant interest savings then it might be worth doing.

If you're situation is relatively typical (salaried wages, no help to buy scheme, decent credit, standard house) then there shouldn't be any cost to remortgage in a few years and I can't see interest rates jumping up too much.
Click to expand...
Thanks for the reply, jumping up to the next LTV bracket would cost us basically everything and I am not too comfortable with that. I think ive accepted the first two years will be expensive and yeah we are pretty typical in that sense, I am using a LISA as part of my deposit but otherwise all good credit and so forth. I was hoping to bank a couple years of bonuses and store them away and then when we come to remortgage I could do a overpayment and hopefully that will shift us over to a better LTV also.
 
As an example, If its a £170k mortgage on a £200k property, the difference in balance remaining between 2.64% and 2.87% after 2 years is roughly £300 total (assuming your term is 25 years).

Not a huge amount in that case and you may prefer the security of a 5 year fix but obviously the higher the mortgage, the bigger the interest saving. Also, it depends on if you plan on overpaying at all as that could get you into a better LTV quicker.
 
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